Timothy Geithner in his book Stress Test describes a series of last minute saves directed by his bosses Henry Paulson, Secretary of the Treasury, and Ben Bernanke, Chairman of the Federal Reserve Bank, where he played the part of the financial plumber, a trading floor expertise in the piping and flow of money, devising last minute fixes to a financial structure that had strayed very far from reality. The Paulson team feared bankruptcy more than the blowback from the injustices of their ad hoc fixes. Each save required extra legal maneuvers to overcome historical legislative obstacles put there to stop runaway calamities from getting even worse. Nevertheless despite the machinations of the team the depression was not averted. In the post mortem the team’s most egregious overreach was to bailout AIG, an insurance company which by law has many firewalls to protect its various businesses. The problem was the London unit at AIG that insured Wall Street’s derivative business. It was at the brink of collapse after having grossly mispriced the risks it took on. That Secretary Paulson, former Chairman of Goldman Sachs, used taxpayer money to make good his old firm’s hedges with AIG is an accusation that he will have to live with, but that Barack Obama chose Timothy Geithner as his Secretary of the Treasury at the suggestion of another former Goldman Sachs Chairman, Robert E Rubin, is the knockout blow the newly elected President never saw coming.
By December of 2008 as President Elect Obama was putting Timothy Geithner up for nomination the issue of AIG’s contracted bonuses came due. These bonuses were for regular insurance business completely apart from the London unit and they had to be paid because there had been no bankruptcy to break the contracts. As the new President took the oath of office Wall Street got bonuses and the working class pink slips, at the rate of 700,000 per month. It took just a few short weeks for Obama to be wiped off the crest of the wave on which he rode into office by Rick Santelli, a Chicago commodities trader and CNBC Squawk Box commentator, who let out a televised rant which started the Tea Party and the 2010 GOP takeover of the House and Senate. This spontaneous televised outburst took on a life of its own as the recession played out and the new Secretary of the Treasury did his level best to make life safe for the establishment.
Santelli’s rant eliminated the possibility of bipartisan goodwill as Republicans very quickly smelled impending defeat of the Democratic majorities in Congress. The Tea Party election of 2010 gave Republicans an obstructionist power but they too were blind to the injured White Working Middle Class. So blind that the GOP’s 2012 candidate, Mitt Romney, was the very cake eater they hated. The one who shuttered factories and dashed their dreams. It was not was until Trump appeared that these people who had lost in life found a voice in one who had no hesitancy in naming villains; be they Mexican, Muslim or Immigrant. FDR lashed out against Wall Street and made some of it kingpins into public villains without sacrificing his humanity. Acting on a gut reaction against something as patently unfair as bonuses for Wall Street and pink slips for the rest of us would have done Obama a world of good.
By December of 2008 as President Elect Obama was putting Timothy Geithner up for nomination the issue of AIG’s contracted bonuses came due. These bonuses were for regular insurance business completely apart from the London unit and they had to be paid because there had been no bankruptcy to break the contracts. As the new President took the oath of office Wall Street got bonuses and the working class pink slips, at the rate of 700,000 per month. It took just a few short weeks for Obama to be wiped off the crest of the wave on which he rode into office by Rick Santelli, a Chicago commodities trader and CNBC Squawk Box commentator, who let out a televised rant which started the Tea Party and the 2010 GOP takeover of the House and Senate. This spontaneous televised outburst took on a life of its own as the recession played out and the new Secretary of the Treasury did his level best to make life safe for the establishment.
Santelli’s rant eliminated the possibility of bipartisan goodwill as Republicans very quickly smelled impending defeat of the Democratic majorities in Congress. The Tea Party election of 2010 gave Republicans an obstructionist power but they too were blind to the injured White Working Middle Class. So blind that the GOP’s 2012 candidate, Mitt Romney, was the very cake eater they hated. The one who shuttered factories and dashed their dreams. It was not was until Trump appeared that these people who had lost in life found a voice in one who had no hesitancy in naming villains; be they Mexican, Muslim or Immigrant. FDR lashed out against Wall Street and made some of it kingpins into public villains without sacrificing his humanity. Acting on a gut reaction against something as patently unfair as bonuses for Wall Street and pink slips for the rest of us would have done Obama a world of good.
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